Financial Instability and the Decline (?) of Banking: Public Policy Implications

Hyman Minsky

Macroeconomics from University Library of Munich, Germany

Abstract: Banking plays two roles in a modern capitalist economy: It provides a means of payment and channels resources into capital development. These functions are being performed to a decreasing extent by banks and it appears that this trend will continue. Such developments suggest that the economic role of central banks needs to be reviewed because the role of banks is significant in the ability of the central bank to conduct monetary policy. This ability is changing due the transformation of the channels through which Federal Reserve operations affect the economy away from affecting the availability or cost of financing and toward affecting uncertainty, the evaluation by portfolio managers of the viability of enterprises, and the stability of markets. When central bank operations affect the uncertainty of financial market agents, market reactions will often be out of proportion to the size of the operation. The decline in the importance of banks in financing the capital development of the economy tends to increase the significance of other institutions, such as the Securities and Exchange Commission (SEC) relative to that of the Federal Reserve. The policy question that arises is whether the existing institutional structure of regulation and supervision of financial institutions needs to be changed in a serious way. In general the discourse on economic policy takes place on two plains. One is that of the day-to-day operations of the "authorities" and the rules if any which should guide them. This paper concentrates on the issues of the legislating and associated administrative decisions that affect the structure and operations of banking and financial markets and the government's involvement in setting rules which constrain and contain banking and financial markets.

JEL-codes: E (search for similar items in EconPapers)
Pages: 36 pages
Date: 1999-03-11
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 36; figures: included
References: Add references at CitEc
Citations:

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/9903/9903008.pdf (application/pdf)

Related works:
Working Paper: Financial instability and the decline(?) of banking: public policy implications (1994)
Working Paper: Financial Instability and the Decline(?) of Banking: Public Policy Implications (1994)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:9903008

Access Statistics for this paper

More papers in Macroeconomics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).